New Century Financial, the most prominent victim of the subprime crunch in the US, has filed for bankruptcy protection in Delaware.
While a string of small subprime specialists have already gone to the fall, New Century was a sector heavyweight, handing out mortgages worth $60bn last year to borrowers with low credit ratings. Based in Irvine, California, the company was second only to Britain’s HSBC in total US subprime loans.
One of New Century’s biggest creditors is Goldman Sachs, which told Wall Street recently that its saw only limited problems from subprime issue.
Emergency financing of $150m for New Century is being provided by CIT Group, a global consumer finance company, and Greenwich Capital while the company is in Chapter 11. Meanwhile, various business assets, such as its servicing platform, are being sold to Carrington Capital Management for around $139m, and a package of loans and securitisation assets are being sold to Greenwich Capital for a further $50m.
In a statement Brad Maurice, president and chief executive, said: “The decision to pursue the sale of the company’s assets and operations through the bankruptcy process was a difficult but appropriate decision for our board to make. This was a very hard step for me personally and clearly not the outcome I would have preferred. However, given the sudden and significant challenges facing our industry and New Century specifically, bankruptcy is the best means available to allow the company’s assets and operations to be sold through an orderly process.”
As part of the Chapter 11 process, just over half the company’s workforce — 3,200 — are being made redundant.
Lazard and AlixPartners are acting as financial advisers to New Century.